(NASHVILLE, Tenn.), January 28, 2016 – Tennessee Comptroller Justin Wilson appeared before the Senate Finance, Ways and Means Committee this week urging state lawmakers to look to the future when deciding how to spend state funds and excess state revenues. In his quarterly report to the Legislature, the comptroller echoed Treasurer David Lillard’s testimony last week, saying the state is in good, strong fiscal condition.
Wilson attributed the state’s healthy financial position to the General Assembly’s action to forgo, reduce or eliminate expenses and the administration’s continued efforts to streamline operations. At the same time, the comptroller reminded the committee that spending decisions may have long-term consequences and adherence to sound budgetary practices reduces the likelihood of significant cuts to government services and tax increases to close budget deficits in future years.
The report was delivered just days before Governor Bill Haslam is scheduled to present his 2016-2017 budget to a joint convention of the General Assembly on Monday.
The state collected about $353 million over budget estimates for the 2014-2015 fiscal year, which ended in July. Similarly, the State Funding Board met in November and projected that revenues could grow by up to $348 million during the current 2015-2016 fiscal year.
“This year’s revenue projections are quite positive,” Wilson said. “Tennessee has the rare opportunity – both through the legislature and the executive branch – to make structural improvements and reforms. These reforms will benefit the people of Tennessee by providing stability, predictability and risk avoidance for decades to come, without a fiscal crisis. To do this, the state must continue to emphasize efficiency in its operations and avoid budgetary decisions that make commitments for future years without the recurring funds to pay for them.”
Wilson recommended putting about $75 million of the excess funds to increase Tennessee’s Rainy Day Fund, the reserves which serve as the state’s financial safety net in the event of a downturn in the economy. The fund for the current budget year is $568 million, still short of the state’s pre-recession year level of $750 million in 2008. He said adequate reserves are a key component of the state’s fiscal integrity and critical to keep Tennessee’s AAA bond rating. He also suggested the use of available funds to increase government efficiency, reduce future costs and lower the risk of catastrophic loss through appropriation of information technology, cybersecurity, overdue capital maintenance and infrastructure. Wilson urged committee members to take care to ensure any new budgetary commitments are financially sustainable, saying the state’s fiscal history offers numerous examples of the serious problems that arise when recurring expenses are paid with nonrecurring funds.
“Comptroller Wilson offered very wise advice,” said Senate Republican Caucus Chairman Bill Ketron (R-Murfreesboro). “Building back our reserves should be the first thing we do with the excess revenue. Tennessee is in sound fiscal condition because we have adhered to conservative financial practices despite temptations to spend beyond our means. We need to continue to prioritize spending, realize efficiencies and have adequate resources in our Rainy Day Fund to weather any future economic storms.”
State Comptroller attributes conservative fiscal approach to action taken by the General Assembly over the last several years
Federal Government Debt troublesome as state looks to future
In his quarterly report delivered to members of the Senate Finance Committee this week, Tennessee Comptroller Justin Wilson said the General Assembly has strengthened the state’s financial position over the past several years by taking substantial steps to save taxpayer money in the future. These steps include
• reforming its laws relating to debt obligations, creating a model for the nation;
• reforming its pension plan for its employees and teachers to ensure they will receive the benefits promised;
• reforming and dramatically reducing the state’s OPEB (other postemployment benefits)
• reforming franchise and excise taxes to provide stability and protect Tennessee businesses; and
• reforming hiring and personnel practices and policies.
He said this conservative fiscal approach has led to Tennessee being recognized as having one of the lowest debt levels in the U.S. and a pension plan which is among the best funded in the nation.
“Most importantly, the General Assembly chose to direct substantial funds to its stated priority: education. While most states chose to cut education funding, Tennessee was one of a very small number of states to consistently increase K-12 funding over the last five years,” Wilson said.
Tennessee’s status of having one of the lowest per capita general obligation debts in the nation was contrasted with the federal debt which has now reached almost $19 trillion. The comptroller’s quarterly report warns that while focusing on state appropriated funds, Tennessee lawmakers should also take note of federal funding. Out of Tennessee’s total budget of approximately $33.8 billion for fiscal year 2015-2016, roughly $12.9 billion are federal funds.
Almost all of the federal funds have strings attached and could be reduced or eliminated in the future. “The state must be mindful that federal funds are a risk,” Wilson said. “Among the first things the federal government might reduce or eliminate is aid to states.”
When asked if he is comfortable that the state knows where all federal mandates fall in terms of the actual costs to the state, Comptroller Wilson replied, “I certainly am not and I don’t think anyone is.” He added, “The relationship and the requirements the federal government imposes on the states, both through funding and also through other legislation, is enormous and it’s probably a major factor, if not the major factor, in the way that Tennessee operates.”
Senate Majority Leader Mark Norris (R-Collierville) reminded committee members that, although the NFIB v. Sebelius case focused on Medicaid expansion and the Affordable Care Act, the case goes on to hold that the federal government cannot engage in confiscatory procedures or polices.
“Where I don’t want to use the word ‘extortion’ by any means, but we’re the appropriators of the state taxpayers’ dollars under the State Constitution,” said Senator Norris. “It’s the legislature that does that. There are some of these programs that are actually working an appropriation that this committee may not see. For example, whether it’s under TennCare as it relates to a lot of discussion right now about the Refugee Resettlement Program, we need to explore with the comptroller’s office hidden costs. We need to look into those hidden costs, those unfunded mandates, so that we can bank sand against that future tide. The federal government cannot lawfully coerce the state to appropriate funds with no real option but to acquiesce.”
The Governor’s Budget Address will take place at 6:00 on Monday, February 3. You can access live video streaming by going to the legislative website at http://www.legislature.state.tn.us/
General Assembly Adopts Judicial Confirmation Plan
The Senate and House of Representatives have adopted a conference committee report on Senate Bill 1 which puts into place a framework on how the state’s appellate judges should be confirmed or rejected under the new constitutional mandate adopted by voters in 2014. The bill is sponsored by Senate Judiciary Committee Chairman Brian Kelsey (R-Germantown).
Under the constitutional amendment, appellate judges are appointed by the governor and confirmed by the legislature. The voters of Tennessee have the ability to vote to retain or not retain judges at the end of their eight-year terms or, if an appointment is to fill a vacancy, at the next even year August election.
“I am thrilled the agreement passed the Senate and House with overwhelming majorities,” said Kelsey. The Senate passed it unanimously (33-0) and the House tally was 86-5. “I look forward to holding the first ever confirmation hearing in the Senate Judiciary Committee in the coming weeks. We are setting precedent for quality judges in Tennessee for the next hundred years.”
Under the agreement, the Senate Judiciary Committee and its House counterpart will each hold a meeting to hear from the appointee. Following the hearing the committee will vote to recommend confirmation or rejection of the appointee to the full Senate. Next, the Senate and House of Representatives will meet in joint session to either confirm or reject the governor’s appointee.
If both chambers vote to confirm, the appointee is confirmed. If both chambers vote to reject, the appointee is rejected. Also, one chamber may reject the appointee by a two thirds vote.
On January 7, Governor Bill Haslam appointed Judge Roger Page of Jackson to the Tennessee Supreme Court, replacing Justice Gary Wade, who retired in September. Upon being signed into law by Governor Bill Haslam, the process laid out in the bill will be used when lawmakers consider his nomination.
Top Administration Officials talk to Senate Transportation Committee about Tennessee’s Roads
The Senate Transportation and Safety Committee heard from Deputy Governor Jim Henry, Tennessee Department of Transportation (TDOT) Commissioner John Schroer and Tennessee Department of Economic and Community Development Commissioner Randy Boyd regarding Tennessee’s transportation outlook. The officials are asking lawmakers to consider a long-term solution to fund the approximately $6.1 billion in road projects currently pending in Tennessee saying it is not only needed for public safety but to maintain the state’s forward momentum in creating jobs.
“Transportation revenues in Tennessee are not expected to be sufficient to maintain existing highways and meet long-term transportation demand,” Henry said.
Tennessee’s roads are ranked third best in the nation, despite spending the third least per capita. Schroer said the cost of asphalt has increased 242 percent since 1989. These escalating costs, combined with stagnate revenues from the state’s gas tax and instability in federal funding, are the primary reasons the state has not kept up with demand, according to the officials.
Tennessee relies on fuel taxes to fund its highways and does not use debt financing, tolls, or general fund revenues. Those taxes are levied on a per-gallon basis, not on price, and drivers now purchase fewer gallons a year than they used to as vehicle mileage has improved. Schroer said the gas tax paid per new vehicle has declined from $213 per year for a new light duty vehicle in 1990 to $166 per year in 2013 and is expected to further decline to $107 per year by 2025.
The administration officials fear that pavement surfaces on existing highways will deteriorate due to lack of state funding. They are also concerned about the impact to bridges which are in need of repair. They indicated that this, in turn, could hamper Tennessee’s efforts to bring new jobs as good roads are a top priority for industries looking to locate here.
A new federal transportation act recently won congressional approval that would send over $300 million to Tennessee over the next five years. Schroer said the “moderate increase” will still not fill unmet transportation needs in Tennessee. He also expressed concerns that the state would be unable to fund the 20 percent match required to draw down the funds.
The bulk of funds currently spent on roads in Tennessee is used for maintenance. “That’s a critical thing that we do,” said Schroer. “We are a ‘fix-it-first’ state. We want to make sure that our roads, our current capital, our investments are taken care of. You’ve got to take care of what you own and take care of it right. That’s why we have the third best roads in the nation. There are many states that don’t believe that. They keep building roads, but they don’t maintain their roads they currently have. That is a track to a bad situation for transportation.”
TDOT expects over two million more Tennesseans on the road by 2040. Ninety-one percent
of funds raised through the state’s gas tax goes to roads with only two percent attributed to administration costs.
Schroer also told committee members that 172 TDOT employees have received their GEDs since the department began efforts to ensure that all workers have at least a high school diploma or its equivalency four years ago.
Members of the Transportation Committee praised TDOT’s efforts last week to clear roads of snow and ice after a winter storm moved through Tennessee. Crews worked continuously through the weekend to clear roadways for travelers.
Issues in Brief
Emissions Testing / New Cars — Newer vehicles would be exempt from auto emissions testing under legislation sponsored by Senator Mae Beavers (R-Mt. Juliet) and approved by the Tennessee State Senate. Emissions inspections are currently required in counties in which the Environmental Protection Agency (EPA) has designated as “non-attainment counties.” These include Hamilton, Davidson, Rutherford, Sumner, Williamson and Wilson Counties. Emissions testing is done prior to vehicle registration or registration renewal if the vehicle is model year 1975 or newer, powered by a gasoline or diesel engine and weighs up to 10,500 lbs. Less than three percent of new vehicles fail emissions testing and the vast majority of those are due to code errors in the testing process. Senate Bill 777 would exempt vehicles three years of age or younger from the inspection. The EPA must approve any rules promulgated through enactment of the bill. The companion bill House Bill 721 will be heard in the Finance, Ways & Means subcommittee on February 10.
Convention of States / National Debt — The House State Government Committee approved a resolution this week calling for a convention of states for the purpose of proposing amendments putting fiscal restraints on the federal government, limiting their power and jurisdiction, and implementing term limits on members of Congress. Senate Joint Resolution 67, sponsored by Senate Government Operations Committee Chairman Mike Bell (R-Riceville) and Senators Ed Jackson (R-Jackson), Jack Johnson (R-Franklin), John Stevens (R-Huntingdon), and Mark Green (R-Clarksville), was approved by the State Senate last year. Article V of the United States Constitution provides that a convention for proposing amendments can be held upon “the application of the legislatures of two thirds of the several states.” Thirty-eight states must ratify an amendment once it has been approved by the convention.
Prescription Drug Abuse — The Senate Health Committee considered legislation this week designed to reduce the rampant overprescribing of pain killers across the state by enhancing oversight of pain management clinics. An amendment was presented to Senate Bill 1466, sponsored by Senators Randy McNally (R-Oak Ridge), Ken Yager (R-Kingston) and Rusty Crowe (R-Johnson City), which reflects negotiations with stakeholders that empowers the state to accomplish this task without overburdening those physicians whom are providing quality care to their patients. Discussions on the bill are ongoing and the legislation is scheduled to be considered again on February 3 by committee members. Tennessee is still a close second behind Alabama as the worst state in the nation for the use of opioids per capita despite improvements made as a result of the General Assembly’s efforts to attack the problem.
Controlled Substance Monitoring Database Advisory Committee — A bill to extend the Controlled Substance Monitoring Database (CSMD) Advisory Committee for two years to June 30, 2018 was approved by the Senate Government Operations Committee this week. The CSMD was created in 2002 by the Controlled Substance Monitoring Act to monitor the dispensing of Schedule II, III, and IV & V controlled substances. Some discussion was sparked after the advisory committee’s testimony on the necessity of having a separate advisory committee which needed to be reapproved periodically by the legislature. Senator Janice Bowling (R-Tullahoma), expressed her concern over ADHD medication abuse within the state and inquired if the advisory committee had noticed a trend. Todd Best, the director of the CSMD, said they had seen a 40 percent increase in stimulants since 2011 and that the increase needs to be managed. Senate Bill 1513 is sponsored by Senate Government Operation Committee Chairman Mike Bell.